THIS BLOG RATES THE S&P 500 BUY/SELL/OR HOLD EACH DAY WITH 2-GOALS FOR LONG TERM INVESTMENTS: (1) PRESERVE CAPITAL (2) BEAT THE S&P 500.
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Thursday, October 31, 2013

Chicago PMI Treats Market to a Trick

The following good news from the Chicago Purchasing
manager’s Index should have been a treat for the markets.

CHICAGO PMI SURGES AT THE FASTEST PACE IN OVER 30 YEARS
(Business Insider)
“Chicago PMI, a gauge of manufacturing in the Midwest, surged to 65.9 in
October, from 55.7.This is the highest
level since March 2011, and the biggest monthly increase in over 30 years…’The
government might have shut down, but Chicago area companies powered ahead in
October as orders and production surged,’ said Philip Uglow, Chief Economist at
MNI Indicators.”Full story at…http://www.businessinsider.com/october-chicago-pmi-2013-10

This is a concern to the markets because as we noted yesterday, “Tapering” of
QE represents a significant threat to the stock markets.In this environment, Good news (treat) is bad
news (trick), because good economic news brings tapering sooner.

AETNA CEO: WHY INSURANCE WILL BE COSTING MORE (CNBC)

“The fact that many current health-care plans do not
offer all the benefits required under Obamacare means that many premiums are
likely to jump dramatically, Aetna CEO
Mark Bertolini told CNBC…"Aetna alone will pass through to its customers
over $1 billion in taxes and fees associated with the Affordable Care Act that
need to go into the pricing," Bertolini said….The Aetna chief went on to
say increased costs to the plans include new taxes and fee implementations,
including new changes in ratings to things such as pre-existing conditions as a
result of expanding policy benefit requirements.” Story at…

"The
recent trading environment has felt something like walking into a place and
having a sense that something is wrong and dangerous but not knowing exactly
what will happen or when. “QE Infinity” has so distorted the prices of stocks
and bonds that nobody can possibly determine what the investing landscape would
look like, or what the condition of the economy and financial system would be,
in the absence of Fed bond-buying."-Paul Singer, Elliott Management Story at…

“The game of Earnings Expectation Conflation continues.
It’s a bit like limbo - with a twist. Though the bar gets lowered every round,
the goal is to make it over the bar, rather than go under it…third quarter
index earnings growth is now expected to be half of what was forecast in June.
Of course, when earnings are announced in October and they “beat” the guidance
set in July, everyone will celebrate…

…The index is no longer cheap…There is evidence of much
more (and increasingly creative) speculative behavior…

…We never expected to find ourselves in an environment
like this again, given the savings that were lost when the internet bubble
popped.”Excerpted from David Einhorn
newsletter of last month from ZeroHedge at…

The 10-day moving average of stocks advancing fell to 53%.(A number above 50% for the 10-day average is
generally good news for the market.)

New-highs outpaced new-lows, Thursday, leaving the spread
(new-hi minus new-low) at +108 (it was +185 Wednesday).The 10-day moving average of change in the
spread fell to minus-20.In other words
over the last 10-days, on average, the spread has declined by 20 each day.

NTSM ANALYSIS

All indicators are now “Hold”, although the Sentiment
indicator was 69% as of the close Wednesday. (I don’t get the data on this
until later tonight.) Currently, my sell indicator is calculated at 70% as a
multiple of standard deviation based on the past 200-days of data.(This is for the sentiment only and it takes
more than 1-indicator to give a sell signal in the NTSM system.) I looked back to the highs in 2009 and found
that at the first significant top in July of 2007, the %-bulls (my sentiment
indicator) never got higher than 59%.This isn’t really too surprising since the Financial crisis was never a
valuation issue.As I noted yesterday,
the funds I currently use for sentiment were not around in 1999/2000 so we don’t
have good data for comparison.That’s
too bad because the dotcom crash was a valuation bubble.

In all of 2009, 2010 and 2011 sentiment did not get as
high as it is now. There were only 2-days in 2012 when it got above today's value. So far there have been 12-days in 2013 when the level exceeded today's value.

MY INVESTED POSITION

I remain about 20% invested in stocks as of 5 March
(S&P 500 -1540).The NTSM system
sold at 1575 on 16 April.(This is just
another reminder that I should follow the NTSM analysis and not act emotionally
– I am under-performing my own system by about 2%!)I have no problems leaving 20% or 30%
invested.If the market is cut in half
(worst case) I’d only lose 10%-15% of my investments.It also hedges the bet if I am wrong since I
will have some invested if the market goes up.No system is perfect.

I still lean toward getting back in, after a pullback, to
speculate on a final ride to the top.NTSM did give several buy signals last week, but the market just looks
too frothy to rush back in…we’ll see if the market will pullback so I can join
the insanity.If not, cash is fine.

Followers

About Me

I am an engineer with a lifelong interest in "playing with numbers" so what could be more fun than trying to develop a system that beats the stock market? Well, lots of things, but I decided to do this anyway.
While I am not a finance-professional, or professional investor, I have developed some skills.
I competed in two CNBC Million Dollar Portfolio contests finishing in the top 4% in 2008 (34,320th of 800,000) and the top 0.1% (448th of 500,000) in 2009. More importantly, I managed to sell out of my retirement accounts at or near the top in 2000 and 2007 and bought close enough to the bottom that I didn’t lose too much sleep. (Even Bill Gates lost SOME sleep.)
I hope that my thoughts will help you achieve your investing goals. Please remember that my ideas are free and there may be times when my ideas are worth less than what you paid.